Best approach to low risk high return savings from inheritance

eskbanker

masonic said:

The urge to engage in pointless party political point scoring seems to have been prioritised over understanding of the product being pilloried to push the politics.

Pretty powerful poo-pooing of a petty proposition via extensive alliteration!

Eyeful

eskbanker said:

Eyeful said:

Stubod said:

..you could always take a "punt" on Premium Bonds. The most one person can "save" is £50k, (tax free).....and who knows, you may get the big one???

1,You mean the Low Risk Savings Bond you get from NS&I which pays no interest.
2. Where overtime your money will buy you less due to the risk of inflation.
3. Where at the end of one Labour government, inflation went up to about 25%.. 

Why do you feel the need to correct Premium Bonds to "Low Risk Savings Bond"?  Premium Bonds are a unique and distinctive product - there's a superficial similarity to standard savings accounts in that capital is protected, but the returns are variable and, importantly for many, tax-free.  They're not for everyone but are a perfectly valid suggestion for consideration here....

1. I personally think that that Premium Bonds are a lottery & so a gamble. I have never had any return on my original PB's  to this day.
2. There are those on this forum that use PB as their "Rainy day" emergency savings account.
3. The OP mentioned savings & bonds, someone then mentioned Premium Bonds.
I only pointed out that they are a Low Risk Savings Bond which pays no interest. I feel there is nothing wrong in stating this. You appear to not feel the same
4. I agree they are tax free, they are not for everyone.
5. As you believe they are a valid consideration for the OP. Would you care to state how much of their £50000, they should consider putting into PB. 

eskbanker

Eyeful said:

eskbanker said:

Eyeful said:

Stubod said:

..you could always take a "punt" on Premium Bonds. The most one person can "save" is £50k, (tax free).....and who knows, you may get the big one???

1,You mean the Low Risk Savings Bond you get from NS&I which pays no interest.
2. Where overtime your money will buy you less due to the risk of inflation.
3. Where at the end of one Labour government, inflation went up to about 25%.. 

Why do you feel the need to correct Premium Bonds to "Low Risk Savings Bond"?  Premium Bonds are a unique and distinctive product - there's a superficial similarity to standard savings accounts in that capital is protected, but the returns are variable and, importantly for many, tax-free.  They're not for everyone but are a perfectly valid suggestion for consideration here....

1. I personally think that that Premium Bonds are a lottery & so a gamble. I have never had any return on my original PB's  to this day.
2. There are those on this forum that use PB as their "Rainy day" emergency savings account.
3. The OP mentioned savings & bonds, someone then mentioned Premium Bonds.
I only pointed out that they are a Low Risk Savings Bond which pays no interest. I feel there is nothing wrong in stating this. You appear to not feel the same
4. I agree they are tax free, they are not for everyone.
5. As you believe they are a valid consideration for the OP. Would you care to state how much of their £50000, they should consider putting into PB. 

You're entitled to your opinion, as is everyone else - I wasn't necessarily advocating PBs for OP, but was simply challenging your attempt to shoehorn them into one of the pigeonholes you'd created when their characteristics are different.  In other words, it was (and is) perfectly valid for another poster to put them forward as a solution without you arbitrarily choosing to lump them into a category that you'd defined when they don't really fit that, as you now seem to accept if considering them to be a lottery/gamble.

[Deleted User]

Bigwheels1111 said:

One do you think you will need any of the 50k in the next 1-5 years.

If no fix it in a 5 year bond at 4.40% with Atom Bank, they are very good.

Interest paid away anually to keep tax down, that would be £2,200 a year.

- £1,000 PSA leaces £1,200 to be taxed.

Depending on your wages if under 50k you would be taxed around £240

As the interest will not be compounded a rough amount would be £59,800.

https://moneyfactscompare.co.uk/savings-accounts/5-year-fixed-rate-bonds/

Or go for a 5 year fixed isa at 4.15% interest compounded.

£2075 a year tax free.

https://moneyfactscompare.co.uk/isa/5-year-fixed-rate-isas/

For most people the isa will win out.

After 5 year compounded the isa will be £61,272.60.

£1472.60 better off with the ISA.

With the ISA you can access the money for a fee / fine.

But be careful though.

You do not know what the future holds.

I fixed my savings 2 years ago for 5 & 7 years.

All was great, A nice income for me and the wife.

Then she passed away in July, I was made homeless and I am unable to access the funds for 3 years and

4 months.

Roll on November 2027, I can buy a house outright.

Until then the interest will let me get by.

Can I just say I am very sorry to hear about your wife.

masonic

Eyeful said:

3. I understand Premium Bonds well enough &  the odds of winning a prize that goes with it.
For those with £1M, putting £50000 into PB's,  with tax free prizes the benefit is clear.  
For those where £50000 is an enormous sum & wanting growth, putting it into PB's & counting on "average luck" to win tax free prizes, the benefit is less clear.

The OP stated in their thread title, "low risk high return savings". One of the only ways they'd have a chance of getting high returns in savings is by being lucky on premium bonds.

Incidentally, it is a mischaracterisation to state that it would be necessary to count on average luck to win tax free prizes. Winning prizes is not contingent on having average luck. Suppose the OP put £20k in a cash ISA, another £10k in a 6 month fix, and the other £20k in Premium Bonds for 6 months, the odds of them not winning any tax free prizes would be over 300 to 1. Half of people that do this would win tax free prizes at least equivalent to a tax free rate of 3.5% (equivalent to 4.4% after BR tax), and those in the lower middle quartile would still walk away with at least 2% (equivalent to 2.5% after BR tax). Those returns can be improved by holding more or for longer, but essentially some interest is forfeit for the chance to win big, with no risk to capital.

The OP also thought it significant enough to mention their need to remortgage at a much higher rate around that time, so if they intended to pay off the mortgage (or a chunk of it), this option might appeal to them, as they are taking some risk with some of the interest over a short period of time without risking their future objective. That is something that perhaps needs to be explored, but some prefer to work towards being mortgage-free, even when it is not, numerically, the best option to prioritise for their long term finances. It is often a personal decision.

So I cannot see any reason to dismiss it as an option to be put on the table for consideration.

Eyeful said:

4. For me a savings account paying interest, beats an account paying no interest, or where you might be paid something. This is important when inflation is high. You might not agree.

It's not really for me to agree or disagree. Another poster has put forward the suggestion to the OP and it is for them to decide what is the better option taking into consideration their own circumstances and preferences.

But I will reserve the right to disagree on one point, and that is the point that inflation is currently high. That ship (thankfully) seems to have sailed. In any case, inflation may not be so relevant if the timescale is short. That is yet to be established.

Albermarle

I know it is not a consideration for the many rational financial thinkers on here ( me included to some extent), but many 'ordinary folk' get enjoyment from waiting to see what prizes they may have won each month with PB's, than seeing an annual statement from a savings account.
This is partly why they are so popular, as well as the miniscule chance of winning a big prize of course.

Linton

Albermarle said:

I know it is not a consideration for the many rational financial thinkers on here ( me included to some extent), but many 'ordinary folk' get enjoyment from waiting to see what prizes they may have won each month with PB's, than seeing an annual statement from a savings account.
This is partly why they are so popular, as well as the miniscule chance of winning a big prize of course.

Yes, I consider myself rational but still get a few minutes of excitement each month seeing whether my holding of PBs can beat Mrs L's.  Sadly she wins far more than I do.  The interest is pretty irrelevent but I have got funds to do the heavy lifting - more lucrative but no fun. Plus of course it doesnt use any of the valuable basic rate tax band.

Eyeful

MASONIC:
1. The OP stated in their thread title, "low risk high return savings". One of the only ways they'd have a chance of getting high returns in savings is by being lucky on premium bonds. I can only agree with this statement.

2. Your previous post stated "PB are quite competitive compared to other savings options for someone with "average luck". Surely this means that if they have "average luck" winning PB prizes they are completive compared to other savings options. If they have less than average luck PB will not be competitive with other savings. 

Now you state it is a mischaracterisation to state that it would be necessary to count on average luck to win tax free prizes.

(a) It seems to me that you where the first to link PB "tax free" prizes to average luck. 
(b) That you are now stating that your first statement was a mischaracterisation.

Please explain to me where I am going wrong in my thinking with respect to (a) & (b) 

3. I agree with the section on mortgages.

4. I was not my intention to imply that present day inflation was high. Perhaps a better choice of words would be:
This is important when inflation becomes as high as in the 1970's.

masonic

Eyeful said:

MASONIC:
1. The OP stated in their thread title, "low risk high return savings". One of the only ways they'd have a chance of getting high returns in savings is by being lucky on premium bonds. I can only agree with this statement.

2. Your previous post stated "PB are quite competitive compared to other savings options for someone with "average luck". Surely this means that if they have "average luck" winning PB prizes they are completive compared to other savings options. If they have less than average luck PB will not be competitive with other savings. 

Now you state it is a mischaracterisation to state that it would be necessary to count on average luck to win tax free prizes.

(a) It seems to me that you where the first to link PB "tax free" prizes to average luck. 
(b) That you are now stating that your first statement was a mischaracterisation.

Please explain to me where I am going wrong in my thinking with respect to (a) & (b)

I'm not sure exactly where your thinking is going wrong, but (b) is incorrect. My statements are not contradictory. Someone with average luck will find PB quite competitive compared to other savings options, and one of the only ways of achieving a high return from savings would be from having greater than average luck on premium bonds. I do not consider the returns from conventional savings to be high, and neither do others responding to the thread if the initial replies are anything to go by. In the context of the inflation monster you introduced into discussion, neither should you.

The point is that with PB returns come as a probability distribution rather than a known return. So if your objective is some high level of return, such as 8% or 25%, then it is an unreasonable objective, but there is a non-zero chance of achieving that with PB, whereas a zero chance with conventional savings (outside some very limited sum in a regular savings account perhaps). If the time horizon is short, as it may well be, then most investment options would be off the table, and a blend of PB and other savings, as I described in my earlier post, may have favourable returns characteristics depending on one's proclivities.

One other option that has not been mentioned up until now is the trusty inflation linked gilt. However, this would need to be short dated and not a fund to avoid the interest rate risk associated with rising inflation. Even when bought and held to maturity, you might not get a real return. If held over a short time, costs could also weigh on returns, depending on the quantity purchased. It is also an investment with a high barrier to entry (both in terms of understanding and execution).

Eyeful said:

4. I was not my intention to imply that present day inflation was high. Perhaps a better choice of words would be:
This is important when inflation becomes as high as in the 1970's.

Well this does seem like quite an extreme tail risk, given it has happened once in living memory. I would not let that tail wag the dog in this situation.

Bravepants

Linton said:

Albermarle said:

I know it is not a consideration for the many rational financial thinkers on here ( me included to some extent), but many 'ordinary folk' get enjoyment from waiting to see what prizes they may have won each month with PB's, than seeing an annual statement from a savings account.
This is partly why they are so popular, as well as the miniscule chance of winning a big prize of course.

Yes, I consider myself rational but still get a few minutes of excitement each month seeing whether my holding of PBs can beat Mrs L's.  Sadly she wins far more than I do.  The interest is pretty irrelevent but I have got funds to do the heavy lifting - more lucrative but no fun. Plus of course it doesnt use any of the valuable basic rate tax band.

Exactly these two post for me. For me and Mrs Pants PBs are a bit of a laugh, when everything else is sorted.

At this point in the thread I'd love to see the OP invest in PBs, and in their first draw win £10k or so! That would definitely be a mic drop moment.